Capitalist crisis – theory and practice

I got a few complaints on my comments page for reporting on Sylvia’s Nasar’s book on great economists (see my post, A Grand Pursuit, 13 August 2012).  Some readers reckoned that I was wasting my time discussing Nasar’s rather bizarre and jaundiced views on Marx. Well, I am not wasting my time bringing to your attention Mick Brook’s new book, Capitalist crisis – theory and practice (published by Expedia and available at Brooks’ blogsite, http://capitalistcrisis.org/).   Brooks provides one of the best and most succinct accounts of the causes of the Great Recession, how it compares with previous crises and the role of finance, all based on a solid theoretical foundation.  He also looks critically at the policy response of governments and economists.

Brook deals with the failure of orthodox economics to foresee or explain the Great Recession.  They were caught on the hop and afterwards carried on as though there had been no crisis.  None of the failed theories of mainstream economics have been disowned, confirming that mainstream theories are more apologies for, than analyses of, capitalism.  Brooks argues that only a radical shift in economic thinking towards a Marxist explanation can revive the credibility of economics as science.

Brooks stands four square behind Marx’s law of profitability as the key underlying cause of capitalist crises, in opposition to the alternative explanations of underconsumption and disproportionality (see his chapter 3.7). Brooks explains that the Great Recession was triggered by the credit crunch as the capitalist mode of production is connected through the circulation of money and credit.  Financial crises can spread to the rest of the capitalist economy, but only when the ‘real’ economy is weak, can they have devastating consequences.

Yes, finance is inherently unstable, as Hyman Minsky perceived, but it is the ability or otherwise to generate profit or surplus value that is the real Achilles heel of capitalism.  There is a close causal connection between general profitability in a capitalist economy and the boom-slump cycle.  That approach explains, not just the Great Recession but also the Great Depression, which in Brooks’ view was not the result of some ‘stock market crash’, but rooted in the weakness of the boom in the US economy of the 1920s before the crash.

The ‘financialisation’ of capitalism in the last half century has been an important long-term trend, but it is not a ‘new stage’ of capitalism that radically transforms the underlying forces in capitalist accumulation.  In chapter 3, Brooks explains how capitalist accumulation takes place and why the rate of profit is the regulator for the capitalist economy as a whole.  Brooks confirms the view of many other Marxist scholars that there has been a secular decline in the rate of profit since the end of world war two, even though there have cyclical upturns in the last 60 years.  A declining rate of profit is the simplest and best explanation for the declining rate of accumulation that capitalist economies have experienced over the last half-century.

Brooks analyses some of the debates that we Marxist economists have had over measuring the rate of profit, including the vexed question of current and historic cost measures for fixed capital.  His main conclusion is that Marx’s law of profitability, based on a rising organic composition of capital, remains confirmed.  He rejects the alternative of ‘overproduction’ as an explanation of crisis.  As Brooks puts it: “to simply attribute the crisis to overproduction gives no explanation as to when the crisis breaks out as it does.  Overaccumulation means the overproduction of capital.  That means more capital has been produced than can be used to make a profit”.  p194.  And it is the collapse of investment, not consumption, that is the key feature of any slump.

Brooks dismisses the policy responses of governments through either austerity or the alternative Keynesian solutions of quantitative easing, fiscal stimulus etc, as unable to turn around capitalism. Only the destruction of capital values in a significant way, either through the long process of deleveraging or through the violent intervention of war, can restore capitalist accumulation.

Brooks’ book may not offer anything startlingly new to readers of this blog and for those who follow the current debates among Marxist economists.  But he does provide a rounded account of the nature of capitalist crises and the causes with all the jargon and pretensions of some stripped away.  Clarity is his watchword.

15 Responses to “Capitalist crisis – theory and practice”

  1. bob montgomery Says:

    Michael– Some of the comments re reading Nasar may have seemed a bit sarcastic but they were aimed at her, not you. My dad, a master bargaining tactician as a trade union president, always hammered away at knowing the enemy. Besides, Nasar may have a block about Marx, but that doesn’t mean we can’t learn something about how the post-classical economists deployed notions like marginal utility etc to “apologize” for the workings of the capitalist economy. It sounds as if Mick Brooks is adding to a growing body of renewed marxian economics, as are you and others. Hang in there comrade.

  2. Erik Larsson Says:

    Hmm, this view that the capitalist mode of production can just “go on as before” after “destruction of capital values in a significant way, either through the long process of deleveraging or through the violent intervention of war” is highly problematic.

    We cant go back in time and undo the technological advancements that have made the productive labour force a smaller and smaller portion and the unproductive labour force a bigger and bigger portion.
    When capital could not extract any more or not enough surplus-value from the productive labour force it was forced to create wast amounts of ficitious capital to borrow labour power from the future to be able too grow. This relationship have come to an end and I cant see how we ever could restore this relationship. Capital have alienated itself from human labour, the only thing that can create value. Marxs law of value was correct as this current crisis shows us.

    You cant just say that capitalism can go on as before, we just need a little destruction…because the historical settings are not the same as after the end of WW2.
    We are watching the end of capitalist commodity production. The technological revolutions only create less demand for value-creating labour power.

  3. Choppa Morph Says:

    Two things:
    You write: “Brooks dismisses the policy responses of governments through either austerity or the alternative Keynesian solutions of quantitative easing, fiscal stimulus etc, as unable to turn around capitalism. Only the destruction of capital values in a significant way, either through the long process of deleveraging or through the violent intervention of war, can restore capitalist accumulation.”
    What’s missing here, and what you rarely if ever mention, is the class response, the political alternative of ousting bourgeois governments and ending the capitalist mode of production, replacing it with a non-capitalist, socialist one. As Marxists we can take it for granted that if the political leadership of the organized working class doesn’t offer this class response, ie if it promotes the interests of the bourgeoisie instead of our own, then eventually the cancer-riddled system will rise again and expand. The cost, as you do point out, is destroying capital, either by the euphemistically labelled process of deleveraging or by war.
    By just looking at the behaviour of one side of the class war (the capitalists and their economic policies) we fail to grasp what’s going on. The real war is taking place in the dark and in silence, as far as public awareness, even within the working class, is concerned. We feel the blows, and hurt, but we don’t know what’s hitting us, or why.
    Our job must be to stop the current traitors leading the working class (could we have a better example of this than the Marikana massacre – the Sharpeville of the Black Bourgeoisie and its labour movement quislings). Prevent them from blindfolding us and putting wax in our ears. The bourgeoisie itself is never embarrassed to tie concrete political demands to its economic analyses. Neither should we be. They set the agenda and make up the rules for the own benefit. Now it’s our turn.
    Second, I’d like you to be clearer about the difference between “over-production” and “overproduction”😀. You write: “He rejects the alternative of ‘overproduction’ as an explanation of crisis. As Brooks puts it: “to simply attribute the crisis to overproduction gives no explanation as to when the crisis breaks out as it does. Overaccumulation means the overproduction of capital. That means more capital has been produced than can be used to make a profit”. p194. And it is the collapse of investment, not consumption, that is the key feature of any slump.” To me this is either contradictory – overproduction both is and isn’t the explanation – or there’s an implicit qualification to the first “over-production” – that is, it should read “the overproduction of commodities” is not a good explanation as opposed to the overproduction of capital, which is. With this clarification, we might be able to say something like “the overproduction of commodities, ie a glut, is the most characteristic symptom of capitalist crisis, but the real cause of capitalist crisis is the overproduction of capital, accelerating competition and driving down the rate of profit.”

  4. Maciek W. Says:

    Dear Michael, thanks indeed for bringing my (our) attention to the Brooks’ book. As I am – or at least I try to be – a regular reader of your blog I do find his views similar to yours (as you’ve mentioned: ‘nothing new here’). That said I understand that describing his approach and analysis, you’re describing to some – to what exactly? – extent those of your own (regarding the falling rate of profit explanation, causes of the Great Depression and Recession, etc.). Do I understand properly? But where – if yes – you differ? Yours sincerely.

    • michael roberts Says:

      Yes, MB and I agree on lots of things. I cannot put words in MB’s mouth but I think he does not agree about my concept of a profit cycle(s), with 16-18 years in the US economy, that I outlined in my book, The Great Recession. I think MB is closer to Andrew Kliman on this. And I know he is very sceptical of my sympathy and support for Kondratiev cycles (50-72 years) in capitalism. There may be other issues.

  5. Erik Larsson Says:

    I think you should read this and then give your opinion: http://libcom.org/library/apotheosis-money-structural-limits-capital-valorization-casino-capitalism-global-financi

    • michael roberts Says:

      Erik

      Ill try and get to it. It’s quite long and will take time to digest. At the end Kurz seems to suggest that capitalism cannot recover from the slump – unless it can find new areas of labour exploitation. I think those do exist still in China, India and Africa etc. But let me digest it first. I saw another post on that site on the Marxist theory of crisis that I skimmed – that looked good to me.

      • Erik Larsson Says:

        I dont expect you too read it all right away but I hope to see some opinions on Robert Kurz thinking eventually, as the Wertkritik-school is slowly getting to the front of debate.

    • P Spence Says:

      I read Kurz article on your recommendation. Its well argued and difficult to fault: but then I am no expert. The future on his analysis does seem bleak for capitalism. Certainly today it feels like we are on the edge of massive global devaluation which will be more devastating, , extensive and sudden than we can presently imagine. Oh dear, and I wanted to enjoy the holiday weekend!

  6. H A Cox Says:

    ‘Hmm, this view that the capitalist mode of production can just “go on as before” after “destruction of capital values in a significant way, either through the long process of deleveraging or through the violent intervention of war” is highly problematic. ‘
    This comment by Erik Larsson gets at the heart of the question of whether the FROP refers to the business cycle or the profit cylcle, or the Kondratiev cycle, etc., or referred to the long term perspective for capitalist accumulation.
    ‘We cant go back in time and undo the technological advancements that have made the productive labour force a smaller and smaller portion’
    Marx expresses the view that the rate of profit would tend to fall over the long run because technical change would tend to have a greater effect on the VCC than increases in the rate of exploitation and the cheapening of constant capital. This technical change is not just about cyclical crises, but more importantly about the long term prognosis for capitalist accumulation. Marx, according to Engels, based his revolutionary demands on the eventual collapse of capitalism:
    According to the laws of bourgeois economics, the greatest part of the product does not belong to the workers who have produced it. If we now say: that is unjust, that ought not to be so, then that has nothing immediately to do with economics. We are merely saying that this economic fact is in contradiction to our sense of morality. Marx, therefore, never based his communist demands upon this, but upon the inevitable collapse of the capitalist mode of production which is daily taking place before our eyes to an ever greater degree; [my underline].” p11, Engels preface to the first German edition of Marx’s The Poverty of Philosophy, 1884
    And the view that capitalism has a tendency to collapse or breakdown was not held by Grossman, it was held by very active marxist revolutionaries at the turn of the 20th century, including Lenin-
    The position of revisionism was even worse as regards the theory of crises and the theory of collapse. Only for a very short time could people, and then only the most short-sighted, think of refashioning the foundations of Marx’s theory under the influence of a few years of industrial boom and prosperity. … That capitalism is heading for a break-down—in the sense both of individual political and economic crises and of the complete collapse of the entire capitalist system—has been made particularly clear, and on a particularly large scale, precisely by the new giant trusts. Lenin, CW vol 15, p29-39 [no fatalist that Lenin guy]
    How could Marx and his epigones been so ‘silly’. Well, Larsson’s mentor Kurz brings back that ‘silly’ idea of collapse and, in spite of some turgid prose, gives an interesting explanation of why capitalism is heading towards collapse and how it has avoided such a collapse up to 1995. I only read his article today, but my first impression is that it is a good response to the idea that crises are always cured by devaluation of capital.

  7. H A Cox Says:

    And the view that capitalism has a tendency to collapse or breakdown was not held by Grossman
    Should read a ‘collapse or breakdown was not just held by Grossman’

  8. duvinrouge Says:

    Whilst I agree that the falling rate of profit is key, I think it is important in the context of capitalism breaking down rather than necessarily a good explanation for cyclical crises.

    I don’t think you can take what happens to recorded profits rates & conclude cyclical crises are caused by falling rates of profit. Certainly, not in the sense of a falling rate of profit caused by an increase in the organic composition of capital.

    I think there’s a theoretical distinction between cyclical crises & breakdown. (See Marxist Crisis Theory – Cyclical & Breakdown http://duvinrouge.org/?p=72).

    Of course all actual crises need not fall neatly into either one of these categories. It looks like the current crisis has elements of both, just as perhaps the 1930’s did.

    To really appreciate the concept of overproduction I think we need to tackle that thorny issue of commodity money. Or at least differentiate between credit money & token money.

    If we go all the way back to the concept of commodity production – the production of commodities for sales, for money – we can see that if money is hoarded there can be an overproduction of commodities relative to the effective aggregate monetary demand (to use a Keynesian term). Commodities go unsold, crisis. But if we take this further & imagine workers borrowing to pay for commodities, we can visualise a situation whereby credit allows overproduction to occur, in a way that is hidden until debt saturation alerts creditors to the fact that debts won’t be paid. In otherwords, the recorded profits have been paid for by claims on future labour time that won’t be realised. Financial panic, crisis.

    None of the above need have anything to do with the tendency for the rate of profit to fall. The fact that recorded profit rates follow the business cycle is not a cause of the cycle.

    That’s not to say that overproduction through a credit/debt boom cannot be a consequence of a falling rate of profit. For the current crisis I think it probably is. There seems to be a growing concensus (maybe I’m being optimistic) that profit rates have fallen post WWII & that the neoliberal backlash has probably only stopped the decline rather than reversed it. Indeed, one of the consequences of attacking workers pay has been the increase in household debt & the resulting overproduction.

    I think this is a way of reconciling the two main Marxist schools of falling rate of profit & realisation problem.

    There’s a facebook group set up to try & explore such differences among Marxists. It’s called ‘Marxist Crisis Theory’. Please participate.

  9. Billsheep Says:

    I knew MB back in the 70s. Infact I remember mentioning to him that David Yaafe was stressing the role of TRPF but Mick referred to counter tendencies. I think his was the orthodox view at the time. The same might be said about attitudes to Mandel and his analysis of the relationship between TRPF and long waves of innovation. I guess MB’s changed his mind, perhaps under the influence of Kliman? On the one hand, this is positive in that it indicates a theorist’s credibility no longer depends on their current poltical affiliation (or lack of it). So we’re now much less sectarian. On the other hand, it just brings homehow we’re stuck in the same old debates. On this basis I reckon Kondratiev will soon be back in fashion but hopefully more along the lines of Trotsky than Mandel’s economism. Personally I think we should show how the capitalist class has moved beyond speculation and into out and out criminality (including manipulating the way profits are calculated and reported).

  10. jim drysdale Says:

    Interesting comments and links. On my own web site…www.capitalismnofuture.co.uk and in my ebook Marx: Capitalism No Future….and soon to be blog…..my main focus is:- the reader discovers the process that is the exploitation of the working class. i.e., discovers what determines the relations of domination and servitude in capitalist society. Mentioning, of course, TRPF. eg the organic composition of capital.

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